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Thursday, February 16, 2012

Economic Outpatient Care / Other People’s Money

Sometimes
the things people own don’t correlate with their expected household income:

How can a secretary drive a brand new BMW?

How can an office manager live in a big home in an
expensive part of town?

How can a non-working grad school student afford to
always eat at the most expensive restaurants?

The answers:

Economic Outpatient Care (EOC) and Other People’s Money (OPM).

I first came across these unique terms in the book The Millionaire Next Door byThomas Stanley / William Danko and also
in the book Stop
Acting Rich by Thomas Stanley. You can check out these books
from the library. The
authors describe economic outpatient care (EOC) and other people’s money (OPM)
as thesubstantial financial gifts some affluent parents provide for their
adult children and grandchildren.

To quote Dr. Stanley:“How do people spend other people’s
money? The answer is “not as well as if they earned it themselves.”

“…giving of such gifts is
the single most significant factor that explains lack of productivity among the
adult children of the affluent.”

When it comes to making money and being wealthy,
there are 2 opposite types of people:

1.Under Accumulators of Wealth(UAW)
– Individuals who accumulate a lot less wealth than one would expect based on
their income.

2.Prodigious Accumulators of Wealth(PAW)–Individuals who accumulate a lot more
wealth than one would expect based on their income.

If
one is always spending as much as they earn or more, they will NEVER increase
their net worth, no matter how much money they make.

It’s commonly found that the UAW tend to require
their parents’ money in order to afford the luxuries they feel entitled
to. Their parents tend to be first generation rich, and come from poor
backgrounds.

The logic that the parents have is that they
want their children to have “everything they couldn’t afford when they were
poor.” These parents don’t want their children to “suffer from being
poor” like the lifestyle their parents grew up in. They go out of their
way to spoil their children, thinking that they are helping their children
succeed.

These wealthy parents do not teach their UAW
children about the importance of budgeting and investing money.
Ironically, the children of such parents are financially crippled.Adult children of
wealthy families tend to be underachievers, and do not achieve the level of
success as their parents.

Let’s say that a parent has 2 children.
One of them is healthy while the other one has a chronic illness. It
would make sense for the parent to take care of the chronically ill child,
right? The opposite is true when it comes
to EOC. Providing your children
with economic outpatient care hinders their development, and weakens their
ability to generate a high income.

Individuals who regularly receive financial
gifts from their parents have only57%of
the net worth as individuals who do not receive financial gifts from their
parents. When a child is constantly given money from their parents, they
develop a false sense of financial security, as well as a false sense of
entitlement.

An analogy is made of a child standing in front
of his parents’ home, telling others to “get off MY property,” as the child is
claiming that what his parents have earned, also belongs to him. These
children never develop the drive and the overwhelming sense of urgency to
succeed. These
children never get the burning fire of relentlessly pursuing their own success. And why should they? Their parents
are there to take care of them.

The scary future is not just for these
individuals. Often times, these individuals regularly receiving EOC / OPM
do just fine. They have lives filled with hyper consumption of material
goods. These individuals tend to put everything on credit even when they
don’t have the money to completely pay for the item. This is the worst
way to use your credit card. If their credit card debt gets too high,
it’s okay. They have their own personal bail out fund from their
parents. Their futures are set.

The scary future is for the children of parents
used OPM. These children end up far worse than their parents. They
will not have parents to depend on in case of true financial hardship. Remember, if you
can’t support yourself without help from others, how are you going to support
your children?
They will have to go to their grandparents for their own financial stimulus
packages. Don’t let this sick cycle become a part of your life.
Constantly making OPM an integral part of your life will ruin your family.

I’ve been lucky to have parents that have always
been there for me financially. In a way, I regret it. I admit there
is no doubt I am nowhere near as successful as my parents. For years,
I’ve lacked the true drive to relentlessly pursue my goals. I’ve always
done fine, just living on my own treadmill existence. I've been working
for 4 years now and I'm embarrassed to say that I don't have much to show for
it. All that has changed now. I’m going to be aprodigious
accumulator of wealth.

There are times when a person truly needs
financial help from their parents or their family. Thomas Stanley’s blog
gives an example of how EOC can be used for good purposeshere.

Not all EOC is bad. Just don’t abuse or
depend on it. If you are thinking about receiving EOC or OPM, ask
yourself if this is a true financial emergency.

Plan out your own finances independently.
Then if you do get a large sum of money from your spouse, or as a gift or
inheritance, be financially wise about it. Look
at increases in income first as opportunities to pay off debt, invest more and
to become financially independent. Wait to spend moneyafteryou become wealthy, not before. But most importantly, do NOT
depend on this magical free gift of money to fall into your lap in the future.